June 2024 - Yikes

What is happening?

After a year of very low rental numbers things have changed very quickly. Since early 2023 rental numbers available in Auckland were around 10 year lows all year long. The January 2023 flooding and heavy immigration combined to keep numbers low and rents rising rapidly. Finally, there was a big rental catch up with rents rising over 10% for the year. But things have changed quickly and substantially. Over the past 4 months rentals available have increased by around 65%, going up from 3683 on February 20th to 5708 today. Suddenly the levels of rentals available is near the post-pandemic highs and it is getting harder to rent out properties. In February the levels were the same as the previous year. Now there are around 50% more 1 and 4 bd properties advertised. For 2, 3 and 5 bd properties the increase over last year ranges from 65% to 68%. We are now at 10 year highs in availability for 4 & 5 bedroom properties.

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What is causing this increase?

We noted the fall in demand for larger properties in our February update. This fall in demand/oversupply has now appeared for all rental sizes. On the demand side the stats tell us that the inward migration boom has peaked and is now falling. On the supply side independent economist Tony Alexander (who we rate) has speculated that developers who have failed to sell housing stock over the past 12 months are giving up and putting unsold units into the rental pool. This fits with what we have seen in some very good quality properties being rented out for high prices and with good demand.

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If developers are becoming accidental investors they will likely sell throughout 2025 and be building fewer properties. This will cause a tightening of the rental supply during 2025 and bring the numbers back. As can be seen in the chart below Auckland building consents are now running at half the level of 2 years ago. In the mean time we do not expect much in the way of further rent rises and anticipate longer vacancy periods, especially for poorer quality rentals.

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Credit for last 2 graphs to www.interest.co.nz